Europe

Western & Eastern Europe is forecast to see minimal or negative GDP growth in the 2nd Q of 2023:

The Euro Zones economies have been challenged by the ongoing war in Ukraine. The resulting natural gas shortages and energy price spikes have really impaired most economies across Europe.

The UK Government has decided to delay the HS2 major rail project (one of the largest construction projects in the UK) by 2 years. This project has experienced major cost overruns. The UK Government has also delayed a number of additional infrastructure capital projects. Substantial inflation and increased construction material and labor costs are the main reasons for these deferments. The UK’s inflation rate is extremely high at between 9.9% and 10.2%%. Look for this rate to start to moderate in the next 6 months.

A number of major and mid-sized UK construction-related companies have gone out of business in the last 3 months, which is a troubling trend for the remainder of 2023. The UK pound remains weak against the US dollar on growing concerns regarding the stability of the UK finances – this could further increase inflation, oil & many imported items that are priced in US dollars. The UK pound has fallen by more than 6.3% against the US dollar in the last 6 months.

Construction-related inflation in the UK is forecast to increase to 9.7% – 10.7% in the 2nd Q of 2023. The Euro Zone country’s salaries & construction hourly rates are forecast to increase by 2.9% to 3.3% in 2023. The rising cost of construction materials and worries over the likelihood of a full-blown recession has resulted in a loss of confidence throughout the UK construction sector.

Many German capital projects were put on hold in the 2nd half of 2022 due to the Russian/Ukraine conflict and the potential of a serious gas shortage. Construction activity in Germany is marginally improving from 3 to 6 months back. Germany is facing some serious challenges related to the importation of Russian gas. The German chemical industry is extremely dependent on Russian gas supplies. The jury is still out on how this will culminate in the next 6 months.

The German Government has allocated billions of Euros for the expansion of Germany’s infrastructure that includes new and refurbished highways, bridges, ports, and rail facilities.

Germany’s inflation rate is very high, at between 7.9% to 9.1%. Look for this rate to start to moderate in the next 6 months.

New Irish housing starts, a major indicator of the Irish economy, increased considerably in January and February, indicating that the impact of construction escalation is starting to trend downwards, which portends to 2023 being a much better year than the 3 previous years for the Irish construction sector.

Many French capital projects were put on hold in the 2nd half of 2022 due to the Russian/Ukraine conflict. Construction activity in France is gradually starting to improve. The French Government is projected to increase future expenditures on new and refurbished roads, bridges, ports/airports, and rail facilities. This points to 2023 being a much better year than the 3 previous years for the French construction sector. France’s inflation rate is high at between 5.8% to 6.4%. Look for this rate to start to trend downwards in the next 6 months.

The value of the Euro has been progressively declining against the US dollar for the best part of 12 months. Some economists are projecting that the Euro could fall between 0.90 and 0.95 to the US dollar in the next 3 months. This (of course) will impact inflation in Europe and could be the catalyst to increase construction-related material costs.

The forecast for construction inflation in the Euro Zone is 8.5%-9.8%. In Belgium, it is 9.4%-9.9%.  Spain is forecast to see 7.1%-7.5% inflation. Italy is forecast to see inflation in the 10.2%-10.9% range.  The Netherlands is expected to experience 11.3%-13.4% inflation in the 2nd Q of 2023.

Home building and commercial construction work, such as hotels, offices, warehouses, and shopping malls have all experienced a slowdown in the last six months in most European countries.